First and Last Payment
- When do I make the first payment?
- What is best for a small business owner?
First and Last Payment
Did you know that you could secure a business loan without paying a single dollar as a down payment? Well, now you know. $0 down payment loans are available for entrepreneurs who need money to start or expand businesses. You can also apply for such loan to pay salaries, pay business bills, and buy business furniture, machinery and equipment.
When do I make the first payment?
Depending on the type of loan that you borrow, you can make the first payment in varied times. For example, you may be allowed to make the first payment in 90 days. This gives you a good opportunity to put the loan to some good use before you can start paying it.
The first payment is a very important question, usually, the first one that you should ask when you are borrowing a loan. Mostly, the lenders will not require you to make the first payment in the very first month of getting the loan. However, since this is something that differs from one lender to another, it is prudent that you ask this question before putting your name on the dotted line.
Now, when it comes to the loan repayment, there are two things to bear in mind. One is that you will be paying the principal amount that you borrowed and secondly, you will be paying the interest rate on the amount that you borrowed. The interest is the cost of the loan.
First payment goes to pay interest first
First pay the interest
The usual case is that borrowers first pay the interest. This means that the first payment you make for the loan will go towards the interest. The last payment will go to the payment of the principal. In that light then, we can say that the first and last payments are for interest and principal amount respectively.
What does this mean and how will it reflect on paper?
Well, after the first payment, the amount for the interest rate starts dropping. However, there might be a noted increase in the principal amount. This is because the first payments that you make are usually discounted towards the interest rate.
Amortization
Equal Payment Amounts
Some lender will amortize the loan, which is an accounting loan that means to calculate everything together such that the repayment of the interest and the principal is all spread out in time so that you pay everything together, and in equal amounts. That means that every month, you will pay an equal amount.
The total interest rate is calculated, considering the loan term
The depreciation rate is taken into consideration and added to the interest rate. Once the math is done, the principal and interest rate are divided over the number of months that the loan is supposed to last and the amount you should pay per month is arrived at. That is how you get the even monthly amounts to repay your loan.
It is very important for you to pay on time
These are equal payments, but then over the period of the repayment, many things might happen to affect the amount that you pay per month. For example, if you make late payments, you may be penalized for that, meaning that you end up paying more money in certain months, or for the very last payment, you could pay more money than you used to pay for all the other payments. It is thus very important for you to pay on time since that will not only save you from paying penalties, but you will build good credit history for your business as well.
What is best for a small business owner?
For a small business owner just starting out, it is best to go for the amortized schedule because it shows the amount of interest that you are paying on the loan. It also shows the payment dates, as well as the first and last payment for the loan. There can be no confusion at all and it is also possible for you to automate your loan repayments so that you do not miss a payment. Even if you do not automate payments, you will know without a doubt how much you are supposed to pay and when.
You can also be clear when you are supposed to make the first, last and indeed all other payments. Remember, when you make a late payment, you will be penalized. So will you when you make an early payment. Loans need to be paid on time.
However, there could also be a discount for early repayment. One benefit is that the remaining interest rate could be wiped off, thus saving you money, that is, if you were using the amortized schedule. However, if you are using the other method where the first payments go to pay the interest rate first, you may only get a discount on the interest rate.